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Price discovery and convergence in fragmented securities markets

Benjamin Clapham (Business Administration, esp. e-Finance, Goethe University Frankfurt, Frankfurt, Germany)
Kai Zimmermann (Business Administration, esp. e-Finance, Goethe University Frankfurt, Frankfurt, Germany)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 1 August 2016




The purpose of this paper is to study price discovery and price convergence in securities trading within a fragmented market environment where stocks are traded on multiple venues. The results provide novel empirical insights questioning the generalizability of the current literature and aim to expand the understanding of price determination in a fragmented market microstructure.


This paper provides an empirical data analysis based on an event study methodology. The authors applied Thomson Reuters Tick History data covering German blue chip stocks listed on multiple venues in 2009 and 2013. Different time aggregations up to one second are applied to provide an in-depth analysis.


The paper empirically discovers a persistent price leader-follower relationship not only during intraday auctions but also in subsequent continuous trading. The authors found that trading on alternative venues instantly dries out in case the dominant market switches to a call auction. In these situations, alternative markets await and adopt the official price signal of the dominant market although prices on alternative venues still indicate a certain extent of price discovery. This phenomenon remains persistent at different levels of market fragmentation, indicating that alternative trading venues fully accept the price leadership role of the dominant market, no matter their own market share.


This paper provides an innovative empirical setup to analyze price co-movement and convergence based on high-frequent data. Further, the results provide novel and robust insights into the price determination process in fragmented markets that clarify the role of price follower and price leader.



JEL Classification — G14, G15, G18, G28


Clapham, B. and Zimmermann, K. (2016), "Price discovery and convergence in fragmented securities markets", International Journal of Managerial Finance, Vol. 12 No. 4, pp. 381-407.



Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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